EDITORIAL: Japan needs focused economic policy to lay foundation for growth

A glimmer of hope appears to be growing in Japan's economic outlook, with growing signs of faster-than-expected recovery from the massive damage caused by the Great East Japan Earthquake and the ongoing nuclear crisis.

The Bank of Japan's latest quarterly Tankan business confidence survey, conducted in June, showed that Japanese corporate sentiment had worsened sharply since the previous survey in March, especially in the auto and electronics industries, which had severe disruptions of parts supplies because of the March 11 disaster.

But by June, many Japanese companies were expecting economic conditions to improve significantly during the next three months, according to the survey.

Manufacturing and distribution is rapidly returning to pre-quake levels, thanks to desperate efforts by workers.

Moreover, the widespread drop in consumer spending in the wake of the disaster started fading after about a month or so.

People and businesses have started responding to possible power shortages with greater calmness.

Changes in consumer lifestyles to help reduce electricity consumption could give birth to new businesses. It is encouraging to see many Japanese companies regarding the situation as a positive opportunity for change.

There is, however, growing uncertainty about the global economic outlook amid swelling government debt and rising inflation in many parts of the world.

In the United States, the Federal Reserve Board terminated its bond-buying program, known as QE2, at the end of June as scheduled after eight months of pumping money directly into the economy.

The U.S. economy, however, is beginning to look wobbly as it is getting hit by soaring energy prices and parts shortages in the manufacturing sector due to the disaster in Japan.

Ongoing partisan battles in Congress over what to do about the swollen federal government debt is making it difficult for the White House to provide fresh fiscal stimulus to the economy.

For emerging countries, the biggest economic problem is inflation. In China, prices keep rising despite a series of interest rate hikes, stirring up social unrest, as indicated by rampant riots.

Some international attempts have been made to push down commodity and energy prices. The International Energy Agency, for instance, has released a huge amount of oil from strategic government petroleum stockpiles.

Since the principal driver of inflation is extremely easy money policy in major industrial countries, the Bank for International Settlements is calling for global monetary tightening.

But higher interest rates would increase the already-heavy debt burdens on many governments. This dilemma is encapsulated in the lingering sovereign debt crisis in Europe.

In Greece, in the midst of a full-blown debt crisis, the parliament narrowly passed a bill to implement a drastic package of austerity measures demanded by international creditors as a condition of a fresh bailout.

But many observers say the package will provide little more than temporary relief.

The challenge for European policymakers is to figure out a plan to reduce the country's debt load while supporting the commercial banks bound to be hurt by such a debt workout program.

Europe is likely to face a crucial decision before long. A Greek debt workout would deepen concerns about other debt-ridden European countries.

Japan is facing its own litany of economic and fiscal woes.

If lawmakers use the crucial bill to allow the government to issue deficit-financing bonds as a tool for political maneuvering or cause the economic recovery to lose steam by dragging their feet on policy efforts for reconstruction, they would be doing a serious disservice to the world economy.

Unlike other major industrial nations, Japan still needs to maintain its ultra-easy monetary policy.

But it is imperative that Japan use the ample funds created by monetary easing effectively to promote new growth industries related to energy conservation and renewable energy, instead of allowing the funds to become idle money.

Putting its economy firmly on the comeback trail is part of Japan's responsibility to the world, which has provided huge support for its efforts to deal with the aftermath of the disaster.

--The Asahi Shimbun, July 2